Insurers use software to underpay auto and home injury claims, consumer group warns
If you get hurt in a car crash, a fall or another type of accident, the insurance company that handles your injury claim might use software to shortchange you, a consumer group warns.
In a report released in early June 2012, the Consumer Federation of America offers information from court documents and an industry insider that indicate most insurers use software for auto and home insurance injury claims to boost their own bottom lines. The report is titled “Low Ball: An Insider’s Look at How Some Insurers Can Manipulate Computerized Systems to Broadly Underpay Injury Claims.”
“What a lot of consumers don’t know is over the past 10 to 15 years, the way insurance companies pay bodily injury claims has changed dramatically – from a system based primarily on adjusters to one that is largely driven by computer-based assessment,” says Travis Plunkett, the consumer federation’s legislative director.
These systems, such as Computer Science Corp.’s Colossus – the most widely used injury evaluation software – work by compiling data on claims paid by an insurer in the past for a certain type of injury and using those numbers to recommend a settlement range. That’s according to Peter Foley, vice president of claims administration at the American Insurance Association, a trade organization representing more than 300 insurers.
“It simply looks at what company ABC has paid on that claim in the past,” says Foley, noting that this software helps insurers efficiently process a total of about 40 million claims each year.
But the consumer federation’s report states that the makers of this software market it to insurance companies as a way to achieve “consistency” – which typically is code for cost-cutting, according to Mark Romano, the federation’s director of insurance claims projects and the primary author of the report.
“Consistency in and of itself is a legitimate goal – however, insurers aren’t investing millions of dollars in this software just to achieve consistency,” says Romano, who worked for 28 years as a claims executive and was designated by Allstate as an expert on Colossus. “They’re looking to save millions more by underpaying injury claims.”
Ways to underpay?
In the report, Romano lists several ways that he says some insurers manipulate their computerized systems to underpay claims:
• Programming a system to spit out lower settlement ranges across the board. For example, an insurer might tweak numbers to get the system to recommend settlement values that are 20 percent lower than it would otherwise recommend based on claims data stored in the system.
• Excluding data about claims paid as a result of jury verdicts to bring down recommended dollar ranges. For example, if a jury forces an insurer to pay a consumer $100,000 for nerve damage to a shoulder, the insurer might omit that case from a computerized system so it doesn’t increase the recommended dollar range for others who suffer that type of injury.
• Asking insurance adjusters to change details from medical records. An example cited in the report: An adjuster without medical expertise might review medical records and change a doctor’s diagnosis of a herniated disc to a less severe problem, such as a soft-tissue injury.
Industry: Software benefits consumers
Insurance industry groups say the software is not used to underpay claims and actually benefits consumers in several ways. For example, the computerized systems can help insurance companies pay legitimate claims more quickly and streamline the claims process, says Steven Weisbart, senior vice president and chief economist at the Insurance Information Institute. “To the extent it cuts down on administrative costs, that leaves more money for paying claims or, alternatively, lower premiums,” Weisbart says.
Foley says this software can make the claims process less subjective.
“It helps the consumer because it affords them the knowledge that the company isn’t using a roulette wheel – ‘Oh, I got lucky and got the guy who pays a lot of money on claims but my sister-in-law got unlucky and got the guy who doesn’t pay a lot of money on claims,’” Foley says. “If I were to pay you $5,000 but my colleague thinks it’s worth $7,500, that’s a 50 percent increase.”
Consumer advocate: More regulation needed
Nonetheless, the Consumer Federation of America is seeking tighter regulation of the claims process by state insurance departments and the National Association of Insurance Commissioners. One of the regulation recommendations: Requiring insurers to notify a consumer in writing when a computerized system is used to process a claim.
The consumer group also recommends that state insurance regulators and the insurance commissioners association make sure companies selling these computerized systems are complying with state insurance laws and regulations.
Dealing with ‘low ball’ claims
In the meantime, though, consumers who suspect they may be getting low-balled by this software can do the following, according to the consumer federation:
• Talk to your insurance adjuster. “A consumer should ask. ‘Hey, are you using any software to assist you in evaluating the value of my claims settlement?’” Romano says.
• Ask for documentation. Consumers should seek a copy of the computerized system’s report about the claim “so they have an opportunity to look at it and make sure they’re getting a fair shake,” Romano says.
• If you’re unhappy, go up the chain. An online guide from the federation on navigating the auto claims process recommends, if necessary, contacting the vice president of claims or director of claims at your insurer’s headquarters.
Consumer experts says that if dealing directly with the insurance company doesn’t produce the desired results, a consumer should consider filing a complaint with his state insurance department – or, as a last resort, consulting an attorney. “If you’ve got a bad feeling about things, then absolutely you ought to talk to a professional … to make sure you’re getting your proper due,” Romano says.